Shaping Your Financial Future through Investing in Real Estate

In the conversation about real estate investments, a lot of people are for it and many are against it. Investment philosophy can be very personal. For me, real estate is something I like to invest in, but it’s important to understand all the factors that come into play, such as interest rates, inflation, borrowing costs, affordability, and more. So, in this episode, I will talk about the impact these kinds of investments can have on your financial future and retirement.

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Jonathan

Transcript

Real Estate Investing for Financial Future

Speaker 1 0:04

Welcome to what the Wealth ? A financial planning and investment podcast for professionals and families to help you navigate life's financial transitions . Jonathan's mission is to facilitate the ability for you to plan for and create the life you love , free from anxiety about money . And now here's your host , certified financial planner , jonathan Bedner .

Speaker 2 0:28

Hello , welcome to the what the Wealth podcast . Today I want to talk to you about buying rentals and investing in real estate as a way to build and shape your financial future , your retirement , and you know how they can impact you . So what I want to talk about is the notion . There's a lot of I guess it's a hot issue . You know , don't invest in real estate or do invest in real estate . There's a lot of people that are for the idea and a lot of people that are against the idea and obviously this is a very personal decision , personal investment philosophy . I personally like investing in real estate . I think it's got a good opportunity .

Speaker 2 1:10

I think that historically , real estate has done very , very well . There's always a lot of factors that come into this around . You know interest rates and inflation and you know borrowing costs and you know affordability what houses actually cost ? Can you even find them ? Obviously , over the last 10 or 15 years , you've seen a huge movement in the bigger pockets community , which is a community of mostly younger people , young professionals , but also some older people who are very real estate savvy and are buying properties for their future and their retirement , and actually some of them have gone on to quit their jobs and just become full-time real estate investors and they do this one door at a time , meaning buying one property , or one door , one unit at a time , and they grow their portfolio . They all do it in different ways . Some of them use leverage Most of them probably use leverage , which means they're borrowing from your banks or other resources to buy these properties .

Speaker 2 2:20

But there's a lot of people out there that say real estate investing is bad if it doesn't cash flow . Now , of course , you want your investment to cash flow . Or it might not make sense to own the property If you own a rental and the only rent that you get doesn't even cover the mortgage . If you have one , plus taxes , plus real estate insurance you know those basic costs , maintenance then it may not be worth the risk to own that investment . Or maybe you have the wrong investment . You think it's good , but you didn't do your due diligence , and so there's a lot of due diligence you can do on the back end to determine does real estate investing make sense ?

Speaker 2 3:09

Now , I am a believer when you own real estate , it should be an intentional decision , meaning you don't just turn all of your houses into rentals just because it's an easy thought or it's an easy process . I'm of the belief that your house is your home . That's where your family is , that's where you know you provide shelter and protection for your loved ones , for your family , and when you own a rental , you should go buy a rental for the sheer reason that that is going to be a rental . Don't make your home an accidental rental . Use your home as your safe haven , as your house , and then Go out and if you want to become a real estate investor , purchase real estate for the sole reason of being a rental . So when you go through the evaluation phase , you know again you're gonna want to look at zip codes , schools they are , they building around you .

Speaker 2 4:09

There's a lot again , a lot of different factors that go into does real estate investing make sense ? Does a certain curtain property that you're looking at make sense ? Once you get a general idea , then you want to know what are those . You know areas that you're in . What are those rent for , what is the average rent , what you know rent increases going into and what is historically rent raised . I guess is what I'm trying to say . Are they raising the rent by five percent a year , or is it eight percent ? Is it three percent ?

Speaker 2 4:39

I see a lot of real estate investors , especially the novice ones , the ones that haven't made this Really a dedicated push and a dedicated part of their portfolio in their future , is they and I've actually done this in my own rental real estate is you get kind of lulled to sleep to their good tenants . They pay on time , you know they don't cause me any trouble and so I'm just gonna keep their rent the same and fast forward five years down the road . They're still paying the same rent they were five years ago . But property tax goes up , insurance , you know , can go up , maintenance will pop up and they're conditioning . Maybe it needs paint , maybe it needs carpet plumbing leak , whatever . So you're gonna need to address that , and the way you address that is through those rental increases . So Let me take a step back and talk about . You know why I think Some people get it wrong when they talk about real estate .

Speaker 2 5:41

What I see other financial professionals and real estate people talk about when they're talking about Should you own real estate and should you use that in your portfolio To make money . And what they talk about is you know how much does it cash flow and does it cover the mortgage , if you have one , and property taxes and vacancy rates and Insurance and maintenance , as it cover those things . And what they say is you know , if you , if you don't make a profit or you break even or you barely make a profit , then it doesn't make sense . You know , it doesn't make sense to take that risk and I actually don't believe that . And here's why if let's just say that you , you use leverage , you put down 20% on a house and you're gonna , you know , go to a bank and you're gonna get a mortgage and you're going to Rent this house or condo or townhouse or whatever it may be , out to people , I Am of the mindset I that , especially if you're working now , if you're retired and your near retirement and you're planning to actually live off of this income , that may be a different story , but if you're a young professional and you're gonna work 10 , 20 more years , I think that this could make

Wealth Building With Real Estate

Speaker 2 7:01

a lot of sense .

Speaker 2 7:01

So my thought is and again , this is counterintuitive from a lot of other professionals but my thought is if , if you can use someone else's money , even if you're break-even or even if you're barely making a profit , but if you can use someone else's money to pay for that asset for you , then you are building wealth that someone else won't take a chance on or is advising people not to take a chance on Because it's not cash flowing enough . There's not enough profit after all the expenses For you to put in your pocket and a lot of things that we do . We talk about Compounding wealth over time and building that wealth and the way you do that is in bite-sized chunks . It doesn't matter if it breaks even . It doesn't matter if the profit is small . Right now we're looking at Rinting this out for the next 10 , 20 years , letting someone else Pay for that asset , and then also when you move into retirement Whether that's retiring early , at 50 or 55 , or you want to work longer , until 60 , 65 , 70 , whatever it may be , but turning that income on to supplement your income . When you're in retirement , whether you get pension , social Security , you're taking income from your investments , whatever it may be .

Speaker 2 8:23

People need a place to live . You see apartments being built everywhere . There's a reason people are building apartments . They make money with them now . They need to make a little bit more money now because that's their business model . But for some of the smaller investors , the people that don't have three , four , five Hundred doors you've just got . You know you're looking to make your first investment or you've got two or three or four . I wouldn't get caught up in the idea that they have to have big profits . They have to make a lot of money now , or it doesn't make sense .

Speaker 2 8:59

I think again , if someone else , if you can I call this velocity of money . But if you can use someone else's money to pay for your assets , what kind of sweet or deal is that ? Now it should break even . You don't wanna be forking money out of your pocket every month to make the mortgage payment or to pay the insurance or to pay the lawn people . So you do want it to at least break even , but I don't think you have to get caught up in it . Making $500 or $1,000 a month profit every month , that's nonsense . The beauty of this is accumulating doors , accumulating properties , using someone else's money , so that sometime in the future you can turn these investments on and provide that income for you and your family . You can always sell these properties down the road and again , someone else paid for most of , if not all of them .

Speaker 2 9:55

This is a huge wealth building tool that , again , a lot of people , a lot of advisors and financial professionals , overlook for the sheer fact that they're not thinking long term . And a lot of advisors coach clients around think long term , don't get worried about the volatility day to day , and I think that's very important . I think you should take that same mindset to real estate investing . If you're comfortable owning real estate , don't think about it in the next one month , one , six months , one year . Think about it long term . How can this benefit my financial life and my wealth building process over a long term ? I think you'd be surprised .

Speaker 2 10:41

I'm a huge believer in real estate investing , have several real estate properties myself and think it's a great way to build wealth long term . I don't think you should only or exclusively build wealth that way , because it gets really hard to cut off a brick to go to the grocery store and buy a loaf of bread . So I think you should have some real estate potentially . If it fits your investor profile and you're willing to own that risk and you're comfortable with real estate , I think you should have some of that . But I think it also makes sense to own investments in the stock market and have those kinds of investments , because that is another powerful wealth building tool . So just kind of want to talk a little bit about my belief in real estate , contrary to what a lot of people think . But I think it's really , really important , especially again if you can leverage someone else to build your wealth for you . Thanks for listening to the what the Wealth podcast . Be confident in your retirement . Have a wonderful day .

Speaker 1 11:44

Thank you for joining us on what the Wealth . For more information , get in touch with Jonathan at whatthewealthcom . Remember to subscribe to the podcast so you don't miss any information that can help you create the life you love . The information of this podcast is educational and general in nature and does not take into consideration the listener's personal circumstances . Therefore , it is not intended to be a substitute for specific , individualized financial , legal or tax advice . To determine which strategies or investments may be suitable for you , consult the appropriate qualified professional prior to making a final decision . Security is offered through LPL Financial member . Finra , SIPC . Investment advice offered through Paradigm Wealth Partners , a registered investment advisor and separate entity from LPL Financial .